FRS 102 Revenue Recognition

Revenue accounting under FRS 102 has undergone one of the most significant changes in the Periodic Review 2024. Section 23, Revenue from Contracts with Customers, has been completely rewritten and is now based on the principles of IFRS 15. For many entities, this represents a fundamental shift in how revenue is recognised, measured and disclosed.

The revised standard applies to accounting periods beginning on or after 1 January 2026 (with early adoption permitted). Revenue is a headline number, and even where outcomes do not change materially, the process, judgements and disclosures almost certainly will. 

What has fundamentally changed?

Under the previous version of FRS 102, revenue recognition was often driven by invoice points, risks and rewards, or long‑standing accounting policies that had evolved over time. The revised Section 23 replaces this with a single, structured five‑step model, applied consistently to contracts with customers.

The focus is no longer on when risks and rewards are transferred but on the following:

• what you have promised the customer
• when control of goods or services transfers
• how much consideration you are genuinely entitled to.

This change matters because revenue is now anchored to performance obligations and control, rather than contractual form or billing mechanics. 

Variable consideration: more discipline, less optimism 

One of the more significant practical changes relates to variable consideration. Entities are now required to estimate variable amounts upfront but only include them in revenue to the extent it is highly probable they will not reverse when uncertainty is resolved. This is a higher threshold than under the previous standard, which allowed entities to include variable consideration when it was considered probable.

For businesses used to recognising upside later in the contract lifecycle, this may result in:

• deferred revenue recognition
• increased use of judgement
• and greater audit scrutiny over assumptions.

This is an area where “commercial expectation” and “accounting certainty” may diverge, and where early involvement of finance teams in contract discussions becomes increasingly important.

Contracts don’t stand still, modifications matter

Contract modifications are another area that introduces new complexity. Rather than simply being treated as amendments or catch‑up adjustments, modifications must now be assessed to determine whether they create:

• a separate contract
• a termination and replacement of the existing contract, or
• a cumulative catch-up adjustment to existing revenue.

Entities with long‑term contracts or frequent scope changes should expect this to be a key implementation challenge. 

Transition options and why the choice matters 

The revised Section 23 allows a choice between full retrospective and modified retrospective transition approaches.

While the modified retrospective approach will be attractive to many due to reduced restatement and disclosure requirements, it still requires:

• a robust assessment of contracts in scope at the date of initial application
• careful calculation of cumulative adjustments to opening reserves and
• clear explanations to users of the accounts.

The transition method chosen can affect reported trends, comparability, and the effort required to implement the standard. This is not a decision to leave to the last minute. 

The rewrite of Section 23 is more than a technical update. It brings FRS 102 revenue accounting into line with modern, principles-based thinking and places greater emphasis on judgement, documentation and transparency.

For many entities, the numbers may not change dramatically, but how those numbers are arrived at, explained and evidenced absolutely will. Early preparation will make the difference between a smooth implementation and a difficult first year under the new rules.